Options for Financing Construction Equipment

Options for Financing Construction Equipment

IRVINE, CA—Rising construction costs are creating financial concerns for commercial builders who want to stay current with their equipment without going into undue debt. GlobeSt.com spoke with Eric Freeman, VP of Summit Funding Group here, about how commercial builders can finance the heavy equipment they need for their construction operations while maintaining financial stability.

GlobeSt.com: With construction costs continuing to rise for commercial builders, what options do construction companies have in order to obtain the heavy equipment they need for their operations?

Freeman: Leasing heavy equipment, instead of a traditional purchase, can be one of the best options available for construction companies today.

Currently, there are extremely attractive terms for leasing equipment, including 100% financing and no money down. Many equipment lessors area also offering lessees the added bonus of deferring their payments up to 90 days. This option can allow a construction company to start a job and create cash flow before their first payment is even due.

Leasing equipment instead of purchasing also allows companies to better manage their fleet. For example, many companies purchase equipment for a specific job. Then, when the job is complete, the company no longer needs the equipment. If the equipment was purchased, the company is stuck and must try to sell the equipment to get it off their books. Alternatively, when leasing, a company can simply hand equipment back after the job is done and doesn’t have to deal with aging equipment they do not need. If the company prefers to keep the equipment, there are also competitive purchase options on most leases, allowing them to do so.

In addition to attractive terms and improved fleet management, leasing equipment can also keep additional debt off of a company’s balance sheet. This can allow companies to maintain their bonding and take on additional contracts, ultimately resulting in additional revenue.

GlobeSt.com: As an equipment finance expert, what emerging trends do you and your firm expect to see with regard to the finance of construction equipment in the coming year?

Freeman: With strong rates and terms available in the current market, as well as the overall advantages with leasing, it’s really no surprise that the largest trend we forecast for 2015 is an increase in heavy-equipment leasing vs. purchasing. The recession was and is a strong factor in the formation of this trend. Many companies began to move from buying to leasing during the downturn. In addition, a number of companies that had purchased equipment before the recession found themselves stuck trying to sell large pieces of equipment at a time when construction was at a standstill. The result for most of these companies was greater financial loss.

Today, construction companies are keenly aware of these risks and want to be prepared in case the economy slows again. These companies understand that construction firms need to maintain a balance of both leased and owned equipment, and that keeping some equipment off their books is the safest way to protect against financial loss. For this reason, equipment leasing in this industry will increase in 2015.

GlobeSt.com: What challenges are construction-company owners facing when seeking financing?

Freeman: One of the biggest challenges in achieving financing for equipment today is increased lending regulations, which are also a result of the recent recession. As we all know, in order to avoid another crash, the Dodd-Frank Wall Street Reform and Consumer Protection Act was put into place in 2010. This act significantly changed the rules for lending and ultimately increased lending regulations. As a result, finance providers today have tightened their underwriting standards and are unable to lend as much money for equipment as they previously did.

To combat this issue and secure the equipment needed, construction companies need to find a finance partner that specializes in equipment finance. These financial solutions providers are not subject to the same restrictions traditional banks are. For example, at Summit, we can general provide clients with larger loans as well as loans on more-specialized equipment, simply because we make our own finance decisions. Construction companies that partner with firms that are less restricted will have access to increased borrowing power.

Stay tuned for more of our interview with Eric Freeman, where he discusses ways for construction companies to remain competitive when seeking equipment financing and other trends in this field.

Courtesy GlobeSt.com

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